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American pension funds look to Israel for investment

Posted By David Brinn On July 9, 2006 @ 8:00 am In | No Comments

From left, Phil Schaefer, President, World Pension Forum; Eddie Trump, Chairman, Trump Group; and Isaac Applbaum, Founder, Opus Capital. (Photo: Shimi Nachtailer)What do local and state employees in California and New York have in common?

For years, a portion of the money that they pay into their pension funds is being invested in Israeli companies. And it has been such a successful venture, that over 40 representatives of pension funds from other states recently spent a week in Israel to learn about investment opportunities.

“Over a trillion dollars was represented by the people that came on the trip, the vast majority of which had never invested in Israel before,” said Isaac Applbaum, founding General Partner of Opus Capital, current president of the California Israel Chamber of Commerce, and one of the organizers of the visit.

“Of the 24 pension funds that were present, maybe three had previously invested in Israel. It’s the largest amount of capital to ever come to Israel at one time. In a period of four days, this group learned everything there is to know about investing in the country,” he told ISRAEL21c.

Among the participants in the delegation were. Alan Hevesi, Comptroller for New York state; Massacussetts State Treasurer Tim Cahill, Daniel Kurtzer, former US ambassador to Israel; as well as heads of CalPers, (California Public Employees Retirement System) CalSTRS, (California State Teachers? Retirement System), Pennsylvania Public Employees, Virginia Retirement System, and Stanford Management Co.

The visit was initiated by the World Pension Forum (WPF), which provides a forum for discussion and educational opportunities for the senior members of US pension funds.

“The WPF is sort of a governing body of state pension funds – they hold conference four times a year and provide educational tools for the state pension funds,” explained Applbaum, who has extensive business dealings in Israel.

“Last year, their president Phil Shaeffer asked me if I could contact Ehud Olmert, who was then Industry and Trade minister, to come over and be a keynote speaker at a WPF conference. He said, ‘absolutely’, and he came over and spoke, and it was spectacular. At the end, Olmert said, ‘OK, I came to you, now it’s your turn to come to me’. So that set the wheels in motion for this trip.”

For Cahill, who in his capacity as state treasurer of Massachusetts is also chairman of the Massachusetts Pension Reserves Investment Management (PRIM) that manages $45 billion, the trip was an eye-opener.

“We haven’t yet made direct investments, but I hope we’ll do so some day. I definitely see the logic in investing some of our money directly in Israeli venture capital funds,” he told Globes. “In general, we usually invest $25-100 million in venture capital funds, and that would be the amount of investment in Israeli funds.

Until now, PRIM has indirectly invested in Israel, buying State of Israel Bonds ($25 million to date, and another $25 million this year), and has also invested in various funds that invest in Israel. But according to Applbaum, there’s been a trend over the last five or six years, for US pension funds to start predominantly investing in Israeli venture capital.

“Israeli VC, after all, is one of the most productive in the world, after the US.
It mostly mirrors the VC strategy of the US and it’s been very successful,” said Applbaum.

Two pension funds that follow that philosophy are CalPERS and CalSTRS, which managed $201 billion as of June 2005. The pension fund is committed to pay pensions to 775,000 retired state public school teachers from the kindergarten through college levels. The fund was represented on the trip by board member and California Department of Finance chief deputy director Anne Sheehan.

CalSTRS has invested in a wide variety of Israeli companies including Alvarion Ltd. (Nasdaq: ALVR; TASE: ALVR), AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC), Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), Koor Industries Ltd. (NYSE: KOR; TASE: KOR) and M-Systems Flash Disk Pioneers Ltd.

CalPERS, which manages $145 billion, has invested in eight Israeli venture capital and private equity funds: Apax Partners, Carmel Ventures, Gemini Israel Funds, Giza Venture Capital, Israel Seed Partners, Jerusalem Venture Partners (JVP), Markstone Capital Partners Group LLC, and Pitango Venture Capital.

According to Sheehan, both funds are pleased with their investments in Israeli technology.

“The picture I got [from the visit] is of a rapidly growing economy, an economy that reacts quickly to change. The State of California has a history of support for and investment in Israel, and the present governor, Schwarzenegger, is committed to continuing investment,” she told Globes.

She was especially impressed to learn about new research being done in Israeli water technology companies, and said that her state could greatly benefit from some of the developments the group was presented.

“California has a water supply problem. The economy is growing rapidly, and the state needs to supply the quantity of water needed. Israel has a lot of interesting developments in this area,” she said.

CalPers’ deputy control board member Joy Higa also singled out the water industry as well as stem cell research as two areas that had sparked interest.

“We are learning about how the Israeli government and the academic community are serving as an incubator for growth in those two industries,” she told The Jerusalem Post.

Applbaum cited the relative young stage of development in Israel as a prime plus for potential investment, and a strong attraction to the pension funds.

“If you think about investment opportunities in the US, they’ve all already been discovered. Israeli society is still relatively early from an investment perspective. You have all these interesting emerging opportunities coming out of Israel regarding water, infrastructure and other industries – they’re fresh opportunities, and from a strategic viewpoint, a good investment possibility,” he said.

New York’s Hevesi, whom Applbaum credits with pioneering the concept of investing in Israel, is the sole trustee of New York State’s Common Retirement Fund, which oversees over $1b. of investments in Israel. He told the Post that that he expects investments in Israel to continue to grow regardless of political circumstances.

“The investment community is not structured to issue a resolution of support [for political developments]. It speaks by its actions,” he said. “The amount of investment has gone up and indications have been very strong from US investors that this will continue, politics not withstanding.”

Hevesi said he would like to see more of a collaboration between New York and Israel, “to connect Israeli brain power with the US investment capacity and New York brain power,” specifically referring to the burgeoning nano-technology field.

According to Applbaum, the goal of the trip was to enable the pension fund managers to learn about Israel as more than a one-dimensional place they read about in the papers and to provide them with a look at the character of the country.

“Everybody got a remarkable feel for the Israeli entrepreneurial spirit. And they got a feel for the history of the country – at the Western Wall and at Yad Vashem – and learned what drives that spirit,” he said.

In addition to being hosted for dinner by Olmert, the group met top politicians, key business leaders and CEOs of companies like Checkpoint and Clal, and learned about potential investments in VC, hedge funds, and private equity.

That combination of business, politics and history convinced California’s Sheehan.

“I will recommend to others to invest here. People read about the political and security situation, but do not understand how alive the Israeli economy is. I compliment you on your ambition to become the next Silicon Valley,” she told Ha’aretz

Applbaum believes that now with the seeds sown, the eventuality of more state pension funds investing in Israel is very high.

“Pension funds don’t work very quickly, and here can’t be concrete results in a day or a week. But I strongly believe that there’ll be significant investments in six months or a year. These people will come back and make investments.”

And when they do, the fund managers and the citizens who are putting their hard-earned money into their pension funds can rest assured that their savings are working and growing when they are invested in Israel.


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